If regulators have their way, the bridge banks formed after the failures of Silicon Valley Bank and Signature Bank will be sold sooner rather than later.

The Federal Deposit Insurance Corp. is said to be pushing for a quick deal to avoid using government guarantees to cover shortfalls at the bridge banks, a former regulator told S&P Global Market Intelligence under condition of anonymity because of the sensitive nature of the deal talks.

"They've been pushing to do it as quickly as they possibly can," the source said. "It will all really depend on how much the FDIC is forced to or was willing to guarantee shortfalls."

Keith Noreika, executive vice president and chairman of the banking supervision and regulation group at consultancy Patomak Global Partners, confirmed that the FDIC is collecting bids for both bridge banks this week and would prefer to see financial institutions buy the bridge banks' entire assets. Noreika was acting comptroller of the currency in 2017.

Noreika also confirmed an earlier Reuters report that Piper Sandler & Co. is advising the FDIC to relaunch the auction process for Silicon Valley Bridge Bank.

Silicon Valley Bridge Bank, Signature Bridge Bank and Piper Sandler did not respond to requests for comment.

Bank buyers preferred

Blackstone Inc., Apollo Global Management Inc. and KKR & Co. Inc. are among the PE firms circling Silicon Valley Bridge Bank's loan books, Bloomberg News reported March 14.

PE firms, however, may not succeed in closing a deal. "What I heard from people close to the agencies is that it is definitely not happening," said an industry attorney briefed on the deal talks.

In some cases, private equity bidders were not allowed access to the data room of the auction process, Noreika explained. Bidders and sellers typically use data rooms to exchange information prior to an auction as part of due diligence. But they can still make bids without the information available through the data room, Noreika noted.

When seeking a buyer, the FDIC has the tendency to select an acquirer experienced in bank operations, said Gene Ludwig, co-managing partner of Canapi Ventures and former comptroller of the currency.

"Running these banks has implications for the public that the bank serves. This is not just purely a financial transaction, but has civic attributes to it," Ludwig said in an interview.

In addition, private equity firms are incentivized to seek an exit from their portfolio companies eventually. "[The agency] doesn't want to necessarily sell the institution to somebody who in turn will rapidly turn it over and make more money as if you didn't get a good price to begin with," Ludwig said.

Ludwig said he is not aware of "a blanket prohibition" regarding private equity bidders, but regulators' decision in the resolution process will certainly be guided by finding a "good deal for the American people."

PE complications

Private equity buyers have previously managed to acquire bridge bank assets, such as the $13.9 billion sale of failed mortgage lender IndyMac Federal Bank F.S.B.'s assets to a private equity group.

However, a bank charter approved by the Office of the Comptroller of the Currency or a state banking agency is a must for a group of investors buying bridge banks, said Patrick Hanchey, partner at Alston & Bird LLP. When a bank fails, it surrenders its charter to its direct regulator.

It would also involve raising significant capital and establishing a business plan that the regulators approve, Hanchey added.

"I just don't see that as a viable option with the speed that they're going to need to move with," Hanchey said in an interview.